It is evident that entering a new market, particularly in a developing country, a multinational enterprise runs a number of risks to obtain certain benefits. There are a lot of factors, both positive and negative, that may affect its business performance (Thite et al. 2016). Among other things, they include membership in international or regional organisations aimed at helping entrepreneurs to solve a number of issues related to trade and preventing unwanted situations in trade relationships between different countries (Hutzschenreuter, Kleindienst & Lange 2014).
More than that, the success of international trade of multinational enterprises depends on a number of other related issues: Its performance is directly linked the attractiveness of a country as a part of international trade, a country’s status of a developing state, and its membership in WTO, as well as the overall characteristics of the region. In the given report, I focus on the activity of such company as Under Armour that was founded in India more than seventy years ago (Chi 2013).The points that are necessary to be covered in the report touch upon both the company’s profile and the position of the country in the global market.
Background to the Company and the Country
The Company Overview
Under Armour (founded in 1996 by the present-day CEO, Kevin Plank) is currently one of the most well-recognized sports brands in the world. Over the last decade, company has achieved a significant growth in scope, stock value, and brand recognition, which allowed it to overcome its competitors and win its high place in the US market (Boone & Kurtz 2013).
Under Armour specializes in production of high-performance goods for sport activities in any kind of environment. The main product line is apparel, which is divided into heat gear, cold gear and all season gear (Chi 2015). The core market is North America (91% of all revenues); the best part of the income comes from wholesales to national, regional, and independent retailers though the company also has direct sales channels (websites, factory house and brand stores, etc. The company’s present in Panama, Brazil, Chile, Mexico, Germany, China, Indonesia, Japan, and Australia (Ratten & Ferreira 2016).
The revenue has increased dramatically (32.3%) in FY 2014 due to brand recognition, expanded distribution channels in EMEA and Latin America, and the introduction of e-Commerce (the core of the current distribution strategy). However, despite its evident success and a continuous growth of revenue, Under Armour still lags behind the two giants of the industry as their figures are incomparably higher (Rothaermel, 2015):
Why the Company was Selected
The company was chosen due to the fact that the situation, in which it currently finds itself, makes it possible for the competitors to push Under Armour out of the market unless its global presence in developing countries is increased. Now, Under Armour is practically absent in the global market (North America still accounts for more than 90% of the revenue). Brand equity of Nike and Adidas hinders global expansion since their influence and recognition are unparalleled. The problem is that the company’s strategy to focus on such sports as American football and baseball automatically limits its scope of action. Thus, the major strategic issue for the company is whether it should continue relying upon selectivity of the target audience or redirect its attention to sports with a larger global presence leaving its differentiating strategy behind (Shishoo 2015). In the situation as such, developing activities in new markets may be the only way to ensure future growth.
The Country’s Background
In 2016, the company’s CEO announced the decision to open stores in India as one of the most perspective markets in the world. Entering India, Under Armour can promote its image of an international enterprise that is always seeking chances to bring technology and innovations to new markets in order to improve the quality of sports apparel not only in the United Stated but all over the world.
The company chose India since it is the largest country in South Asia. The number of people living in India is enormous as it exceeds one billion; rapid growth of population and a lack of resources needed in order to implement certain technologies in some parts of the country belong to the number of reasons why India is still referred to the number of developing countries (India demographics profile 2016 2016). As for population, it needs to be said that levels of social inequality are very high as valuable resources are generally concentrated in the hands of the minority (Negi & Prakash 2016). Despite the poverty, economic development of the country is very fast as its labor power is enormous; the majority of the people in the country work in the sphere of agriculture; yet, a culture of a modern lifestyle is gradually catching up, which implies that the sportswear market is about to explode.
Attractiveness of the Country for the MNE
Assessing the attractiveness of India, it is necessary to analyse advantages and disadvantages of doing international business by the MNE in different spheres. Speaking about legal sphere and advantages that exist for India, foreign trade in clothes manufacturing is believed to be one of the perspective ways to improve economics. Considering that companies that have successfully entered foreign markets help the country to improve its position in the global community, it has been proposed to introduce additional measures aimed at export encouragement (Le Page 2015).
They include rewards and introduction of new incentives for companies in special economic zones although some people disagree that these differential approach is necessary. Owners of companies whose production has been recognised in other countries are supposed to be offered additional privileges aimed at facilitating their trade processes. Considering the fact that governments of developing countries are ready to support successful businesses, such companies as Under Armour have a lot of legal advantages.
As for disadvantages, it is clear that there should be significant restrictions when it comes to foreign trade of developing countries; the possibilities of expansion of the discussed company should be limited as development of foreign trade that is too rapid may destroy the economics of the country. Nevertheless, the disadvantages do not seem to be significant if compared to opportunities when it comes to acting as a MNE in a developing market (Ornelas 2016).
In reference to political advantages in India that may influence the activity of MNE, it is important to note that globalization that takes place nowadays helps to increase trade and, therefore, strengthens the links between countries. From the perspective of developing countries, this opportunity is extremely significant as becoming a valuable commercial partner for developed countries increases India’s chances to earn support from the heads of leading countries (Dubash 2013).
Therefore, current political situation involves benefits for Under Armour as well. Nevertheless, it is clear that developing countries are relatively vulnerable when it comes to political struggles; due to that, it can be easy for those having no interest in active participation of Indian companies in international trade to use their political power to fulfil their interests. Apart from that, one more disadvantage for MNE in India is related to other countries’ failure to respect its territorial integrity; on grounds of this misunderstanding, a conflict between India and China happened a while ago (India boycotts China’s Belt and Road forum 2017).
Considering the fact that developing countries do not usually collaborate with a large number of foreign partners, they should understand that conflicts can make some of a few partners deter from further collaboration. In case of severe disputes, reputation and performance of enterprises in such countries may deteriorate as well (Tong & Su 2014).
As for economic opportunities for MNE in developing countries, it is necessary to state that economic globalization provides a great number of benefits including better brand recognition. Other economic benefits during globalization include a decrease in unemployment. Nevertheless, entering a developing market may mean selling products at lower prices if compared to the same products exported to developed countries and it acts as a significant disadvantage.
WTO Membership and Attractiveness of the Country
There is no doubt that WTO membership provides countries with extended opportunities when it comes to international trade. India became the member of WTO more than twenty years ago, and this fact has an influence on its present position in the global market (India and the WTO n.d). If we speak about legal effects, membership in WTO has contributed into the adoption of more supportive trade laws.
To begin with, being related to this organisation, India was given the opportunity to express its concerns about trade and competition. A few years after WTO entry, it created a document touching upon inappropriate approach to having a business competition (Indian papers/submissions in WTO n.d.). It can be supposed that the right to criticise current policies and propose its own decisions has helped India to improve its situation and obtain justice in case of disputes with other countries concerning terms of trade. Therefore, Under Armour will be provided with numerous benefits from the government when it comes to trade.
As for political effects of WTO membership for the country and the company, many sources claim that India is one of the countries challenging dominance of the United States when it comes to politics and economy (Hopewell 2015). In reference to WTO negotiations, India has managed to be an active member of an organisation capable of expressing its concerns as they are, and it contributed into making political atmosphere in the country more business-friendly.Thus, it is widely accepted that global significance of Indian companies is increasing and this is why people related to MNCs in India are provided with extended opportunities for distributing their production in the country and abroad (Gupta & Bhaskar 2016).
In reference to the links between WTO membership and attractiveness of India for the MNE chosen from economic perspective, it can be said that the company can significantly improve its position in the global market (Cheong, Kwak & Tang 2014). In fact, there are studies whose authors believe that there is a real opportunity for India to strengthen its economic position even more and pose a threat to current global leaders, which means that the investment will bring considerable benefits (Wilkinson 2015).
The Regional Economic Bloc Membership and Attractiveness of the Country
Apart from WTO, India remains a member of certain regional economic unions; for instance, it acts under SAFTA and this fact also makes it a more attractive trade partner and extends business opportunities for companies (Akram & Ciddikie 2014). In fact, the agreement allows such countries as India, Pakistan, Nepal, and others to conduct trade operations easier (Bhatti & Taga 2014). Under Armour can use a lot of advantages while collaborating with other SAFTA countries due to benefits for countries making long-term contracts.
The effects of SAFTA on a political situation in the country can also be called positive as the government encourages companies that are capable of improving the situation with unemployment (Rasciute & Downward 2016). More than that, SAFTA offers attractive terms for members and strengthens links between South Asian countries that results in a more positive political environment in the region in general.
The economic benefits of trading under SAFTA making India more attractive as a business partner and a ground for business development of MNAs include decreased taxes and numerous tariff concessions that definitely encourage an extensive collaboration between India and other countries (Agreement on South Asian free trade area (SAFTA) n.d.). Consequently, this fact provides MNEs located in India with an opportunity to establish trade relationships with countries in the region on favorable terms.
Conclusion
In the end, being regarded as a country with a developing economy, India manages to obtain important benefits strengthening its positions due to its membership in WTO and other organisations. Numerous advantages for Under Armour doing business in India include the country’s potential to improve its foreign relations due to globalization, its opportunity to influence international trade laws through WTO membership, favourable terms of collaboration with South Asian countries, improved brand recognition, and the chance to challenge current industry leaders. Despite the disadvantages that also exist, the performance of the company is likely to be successful.
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